By Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Another tariff deadline passes, even if markets take things in their stride for now, as a busy Friday looms, where the data docket is highlighted by the July US jobs report.
WHERE WE STAND – A rather hectic first seven months of 2025 is, staggeringly, already in the books! The year’s flying by, with just five months left to go.
Anyway, in terms of markets yesterday, I guess it was ‘more of the same’ across the board. I shan’t complain about this too much, as at least it makes writing commentary on a Friday morning considerably more straightforward!
Stocks saw early gains, yet again, this time driven by solid earnings beats from both Meta & Microsoft, though those gains slowly but surely fizzled out as the day went on. For me, while conviction behind equity moves is still somewhat lacking, the bull case remains intact, as both economic and earnings growth remain solid, and as progress continues to be made towards trade deals, slowly but surely allowing us to price out left tail risks. The path of least resistance still leads higher, with dips being buying opportunities.
While growth remains solid, inflation continues to pick up, with yesterday bringing a hotter than expected June core PCE print, at 2.8% YoY, while the same data also pointed to the fastest pace of durable goods inflation since the mid-80s, excluding the pandemic period. Quite obviously, this vindicates the FOMC’s patient stance, even if that continues to attract the ire of President Trump.
Anyway, tariff-induced inflation is a risk that markets already discount relatively well, which probably helps to explain the relatively rangebound nature of trade in the Treasury complex yesterday. Dip demand is still likely to be seen in the benchmark 10-year at 4.50%, and the benchmark 30-year at 5.00%, for the time being, even if conditions remain relatively rangebound overall.
Rangebound, though, can’t be an adjective ascribed to the G10 FX space for now, with the dollar extending recent gains yesterday, as the DXY not only cleared its 100-day MA to the upside, but also traded north of the 100 figure for the first time since late-May. I remain a dollar bear, but am going to stay on the sidelines for the time being, at least until the usual EoM nonsense is out of the way, and we can get a clearer read on proceedings, before looking to fade the rally.
Amid all of that, we had the Trump Admin. throwing around fresh tariff levels, with the 1st August deadline having now passed. I shan’t recap the specifics here, besides noting the rather odd 39% levy imposed on Swiss imports, and I continue to be of the belief that these should be viewed through the lens of a negotiating gambit, as opposed to anything else. We still haven’t heard anything on an extension to the China trade truce, though, which remains my base case, so hopefully we’ll get clarity on that front soon.
In any case, quite apart from the ’90 deals in 90 days’ that the Admin had sought, what we have actually ended up with is 8 deals in 120 days, the details of most remaining fuzzy. That’s called ‘winning’, apparently.
LOOK AHEAD – An unusually, and annoyingly, busy Friday lies ahead.
Highlighting things will be the July US labour market report, set to show headline nonfarm payrolls having increased by +105k last month, a notable slowdown from the +147k seen in June, though still considerably above the ‘breakeven’ rate required for job growth to keep pace with growth in the labour force. Meanwhile, average earnings are seen rising 0.3% MoM, and 3.8% YoY, reinforcing the FOMC’s long-standing view that the labour market isn’t presently a source of significant upside inflation risk. In the household survey, unemployment is set to tick 0.1pp higher to 4.2%, even as labour force participation holds steady at 62.3%.
The market’s reaction function in interpreting the figures should be relatively straightforward, with focus falling on the macroeconomic backdrop, as opposed to any potential monetary policy implications of the data. In short, good news is a positive, and bad news isn’t. That said, the report is unlikely to move the needle much for the FOMC, even as Powell slightly pushed open the door to September being a ‘live’ meeting, with another set of jobs figures due before then anyway.
Besides NFP, we have a whole host of manufacturing PMI figures from across DM dropping throughout the day, though pretty much all of those will point to continued contraction in the sector. In addition, ‘flash’ eurozone inflation stats are due, set to show headline CPI having dipped marginally below the ECB’s 2% target last month, while the final UMich consumer sentiment print is likely to be revised a touch higher from the prelim. estimate.
On the earnings front, ‘big oil’ steals the show, with ExxonMobil and Chevron both reporting before the open, while attention will of course also remain on any tariff developments through the day, which also presents potential gapping risk at Sunday’s open.
After all that, I think we’ll all be looking forward to enjoying a couple of well-earned cold beverages, before taking aa long lie down in a dark room, given how hectic this week has been!